By restructuring your property portfolio and moving ownership out of your personal name, you can benefit from several tax advantages and financial protections, including:
- Reduce Your Rental Income Tax:
By transferring your properties into a corporate structure, you'll only pay corporation tax (currently at 19% in the UK) instead of personal income tax rates, which can go as high as 45%. This can significantly reduce the amount you pay in tax on your rental income.
- Save All Your CGT (Capital Gains Tax) from Historical Gains:
Moving your properties into a corporate structure can potentially help you avoid paying Capital Gains Tax on historical gains when you sell or dispose of assets. This structure can be particularly useful for those with a long-term portfolio, as it may shield past profits from CGT liabilities.
- Protect You from Inheritance Tax:
Holding your rental properties within a company structure may provide greater protection from Inheritance Tax (IHT). By leaving shares in the company to beneficiaries, you could reduce the IHT liability on your estate, as company shares may be more easily transferred than individual properties.
- Get All Your Money Out of Your Business Tax-Free:
By operating your properties through a company, you can potentially withdraw money from the business tax-free as dividends or through share sales, depending on your personal and business situation. This offers more flexibility and control over your income, compared to withdrawing funds from personal property ownership.
Other Key Benefits of Moving to a Corporate Structure:
- Offset Financing Costs: You can offset all mortgage and financing costs against rental income, reducing your taxable profit.
- Business Expenses: You can also offset business-related expenses, such as petrol, entertaining, and office costs, against the corporation’s income, further reducing your taxable profit.
This strategy can provide greater tax efficiency, protect your assets, and give you more flexibility in how you manage and extract income from your property portfolio. However, it's important to consult with a tax advisor or accountant to fully understand the implications and ensure this approach suits your long-term financial goals.